This is an entirely free service. No payments are to be made. Also send me The Ultimate Guide to Profiting From Derivatives and sign me up for Profit Hunter,a free newsletter that focuses on identifying short term money making opportunities.Download NowSubscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.

VST Industries: Hurt by tobacco prices

Apr 25, 2009

Performance summary

Standalone topline grows by 12.1% YoY, presumably on the back of higher sales of filtered cigarettes.

Operating profits decline by 18.8% YoY, mainly on account of higher raw material costs, resulting into a 6.9% fall in EBDITA margins during the fiscal.

Bottomline grows by 6% YoY, aided by higher other income and exceptional items. Excluding exceptional, bottomline sees a decline of 16% YoY.

The board has recommended a dividend of Rs 30 per share (dividend yield of 9%)

Standalone financial snapshot

(Rs m)

FY08

FY09

Change

Net sales

3,416

3,831

12.1%

Expenditure

2,565

3,140

22.4%

Operating profit (EBDITA)

851

691

-18.8%

EBDITA margin (%)

24.9%

18.0%

Other income

127

194

53.0%

Interest (net)

(20)

(10)

Depreciation

137

158

15.3%

Profit before tax

861

737

-14.3%

Extraordinary inc/(exp)

-

126

Tax

277

245

-11.5%

Profit after tax/(loss)

584

618

5.9%

Net profit margin (%)

17.1%

16.1%

No. of shares (m)

15.4

15.4

Diluted earnings per share (Rs)*

37.9

40.1

Price to earnings ratio (x)**

8.1

(* annualised, ** on trailing twelve months earnings)

What has driven performance in FY09?

The standalone topline of VST Industries grew by around 12 % YoY during the fiscal. This growth could be owed to the increased proportion of filtered cigarettes in the portfolio. It may be noted that the company has been successful in reorienting its business model from non filter cigarettes to filter cigarettes so much so that more than 90% of the revenues now comes from the filter cigarettes category. Furthermore, the company has a well entrenched position in filter cigarettes in select regions, thus enabling the growth in topline.

The company’s operating margins have contracted by 6.9% during the fiscal. Greater than proportionate rise in raw material costs as well as other expenses have been responsible for the contraction in margins. Infact, the former has come in higher by as much as 32.2%, shaving off the company’s margins by 610 basis points. As per the recent newspaper reports, the tobacco prices have increased by around 50% during the past one year.

Cost break-up…

(Rs m)

FY08

FY09

Change

Raw materials

1,369

1,809

32.2%

% sales

40.1%

47.2%

Staff cost

450

489

8.7%

% sales

13.2%

12.8%

Other expenditure

746

841

12.7%

% sales

21.8%

22.0%

The bottomline growth for the company has come in at 5.9% YoY, despite the fact that operating profits declined during the fiscal. However, higher other income to the tune of 53% and an exceptional income saved the day for VST. On the latter, it received a refund of Rs 126 m from the excise department on account of winning a tax dispute. The company has accounted for the same by way of an extraordinary item in the profit and loss account. Excluding the same, net profits declined by 15.7% YoY during the fiscal.

What to expect?

At current price of Rs 325, the stock is trading at a multiple of 7x its expected FY11 earnings per share. Although the company performance has been below our earnings estimates for the fiscal, what gives us comfort is the fact that the underperformance has not been significant. We continue to remain positive on the stock.

OTHER USEFUL LINKS

MARKET STATS

ABOUT EQUITYMASTER

Since 1996, Equitymaster has been the source for honest and credible opinions on investing in India. With solid research and in-depth analysis Equitymaster is dedicated towards making its readers- smarter, more confident and richer every day. Here's why hundreds of thousands of readers spread across more than 70 countries Trust Equitymaster.

All rights reserved. Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.